Opinion: Buffett followed this one rule in Burger King deal

SAN FRANCISCO (MarketWatch) — To the legions of Warren Buffett fans out there, the billionaire investor’s supporting role in a deal to finance Burger King’s acquisition of Tim Horton’s likely won’t shake their loyalty — even if it means the Home of the Whopper is moving to Canada.

The bigger existential crisis for his followers is probably where to stop for lunch: at Burger King or Dairy Queen, another fast-food restaurant in Buffett’s Berkshire Hathaway Inc.
BRK.A, -0.35%BRK.B, -0.08%
portfolio.

The combined company will be based in Oakville, Ontario, Tim Horton’s hometown, and that part has come under fire for the tax ramifications. Burger King’s parent will now be a Canadian taxpayer. Canada has a lower corporate tax rate; even with provincial taxes added in, the rate is still 10 percentage points below U.S. rates.

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Critics argue that the deal creates a tax inversion where the parent company is taxed at the lower Canadian rate. Tax inversions have been criticized in recent weeks by the Obama administration, which wants to rein them in.

Buffett’s support of such a deal doesn’t jibe with his popular image as someone who is concerned about taxation and economic policy. That image was enhanced by his role as an adviser to presidential candidate Barack Obama in 2008 and other elected officials including Gov. Arnold Schwarzenegger of California in the early 2000s.

In a 2011 essay, Buffett laid out the case for why the wealthy should pay more in taxes, leading to the so-called Buffett Rule, a tax-fairness principle that has been embraced by the Obama administration.

So, with Burger King, is Warren Buffett putting profit ahead of his principles?

Over his long career, Buffett and Berkshire Hathaway have taken heat on issues ranging from ethical investing, use of risky derivatives and disclosure practices. In each case, Buffett has walked close to, but never crossed, a line.

Buffett, through a representative, declined comment for this column.

In 1999, he lost an exemption from the Securities and Exchange Commission that allowed Berkshire Hathaway to hide its ownership positions in companies.

A couple of years later, Buffett received rebukes for bowing out of an agreement after the Sept. 11 attacks. Buffett cited an “act of war” clause in the contract. Critics argued he was simply looking to avoid a loss.

In 2007, Buffett and Berkshire Hathaway were criticized for investments in PetroChina Co.
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which was deeply involved in Sudan at the time the nation was embroiled in a civil war that human rights activists said was marred by acts of genocide. Buffett stood by the investments, saying, “Berkshire Hathaway invested in PetroChina because it was cheap, not because it was China.” But eventually the stake was sold.

And then came the financial crisis. Buffett advised the president at a time when several of his investments in companies such as Wells Fargo & Co.
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and General Electric Co.
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received government aid.

Finally, as lawmakers drafted the Dodd-Frank Act in 2010, Buffett sought to carve out another exemption for Berkshire and its use of derivatives, securities that Buffett had famously called “financial weapons of mass destruction.”

In the end, for all of his folksy charm, the “Oracle of Omaha” is about as Wall Street as they come. Buffett has always been about a good investment and the intrinsic value of the brands and companies he buys.

Does this mean Buffett doesn’t care about taxes, wealth distribution or the economy? Of course not. It means he has held true to the core principles that made him and his investors the returns they’ve enjoyed for more than four decades.

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